After a decline which followed the 2008 crisis, intentions to use credit started to rise again in France in 2016. Similarly, in the opinion of the Observatory of Household Loans, the sentiment of households holding credit is constantly improving. Credit is used to finance personal projects and unfulfilled dreams. More than a provision of new money, credit is an investment tool which today participates in the management of the household budget.
As a loan is also a bet on the future financial capacity of the borrower, it is essential to study it well. One of the essential tools for studying a loan is credit simulation. It concerns mortgage loans, consumer loans and loan consolidation.
Among the types of essential credit simulation, there is the simulation of the annual percentage rate of charge (APR) which determines the real cost of credit, the simulation of the debt ratio and that of the borrowing or purchasing capacity of all applicants. Depending on the type of simulation to be done, there are nuances in the information to be provided to online calculators.
How to define credit simulation
Credit simulation is a preliminary study of the conditions of a credit. It consists of providing personal information to online calculators which instantly return the result of your request. The development of the Internet has made this process accessible in just a few clicks. We retain 3 main calculators including that of the APR, the debt ratio and the borrowing capacity. For each calculator, specific information to provide.
The calculator of the overall effective rate (TEG), performs the simulation of the real cost of credit. The real cost of credit is the sum of the lending rate of all the credit plus the costs of files and insurance. These same elements are the basis for calculating the APR. To perform a TEG simulation, you must enter:
- the desired amount of money which will take into account the requested amount and any personal contributions
- the duration of the desired loan
The expected results are:
- the annual percentage rate applied by the financial institution
- the amount of monthly payments or installments
- increased monthly insurance payments
- the insurance rate according to the lender
- the overall cost of credit
With these credit simulation results, we are able to accurately calculate the total cost of credit considered with each offer. To this end, it is advisable to carry out several simulations of the APR on the various market proposals before making a choice.
The debt ratio calculator will simulate the level of your expenses according to your current income. It allows you to assess your solvency threshold in order to prevent all risks associated with subsequent loans. The maximum recommended debt ratio is 33%. It can go up to 50% for a consumer loan. To establish this rate, you must enter the dedicated calculator on:
- the resources of your household including the fixed income (of the spouses or of the lender alone). It may be the salary of rents or a pension received, an allowance etc.
- your expenses, whether they are current expenses, household expenses, a pension paid, the repayment of an old loan or others.
It is advisable to carry out a credit consolidation when the load on your previous loan is too important for your finances. The monthly payments are reduced but the duration of the installments is longer with the disadvantage of a higher final cost
The borrowing or purchasing capacity calculator allows you to know your purchasing or borrowing power according to credit. To carry out this credit simulation, you must provide the calculator with information on the lending rate of the creditor without insurance, the duration of the credit, the type of your loan project (work loan, car loan, purchase loan, mortgage loan, etc. mortgage loan, credit consolidation, revolving loan, etc.), the amount of the monthly payment of your choice.
Credit simulation is only one of the steps to validate in your loan project. It must precede a request and an interview with a commercial advisor from the bank or financial institution.
The credit rate
The credit rate refers to the overall effective rate (TEG). For all loans, the TEG is made up from the base rate also called the nominal borrowing rate applied to all maturities, loan application fees and the cost of any insurance. The annual percentage rate of charge or TEAG is an annualized variant of the TEG. If the base rate is fixed, the TEG is easier to establish than with a fluctuating nominal rate.
To have an interesting TEG, it is necessary to make several simulations and to compare the different offers. In certain loan cases such as mortgage, the value of your personal contribution can affect the level of the bank's base rate. If your contribution exceeds the 10% commonly set by banks, they will be more inclined to lend you at a lower rate.
Which credits to simulate
All loans available in the market today benefit from online simulation tools. These instruments were further developed following the Lagarde reform of 2010, to provide solutions that protect consumers by providing them with a variety of choices through competition. We can therefore simulate his unaffected personal credit, an affected loan , a mortgage or a credit redemption.
- the affected credit
The affected credit is a credit linked to the purchase of a good or a service. The loan is conditional on delivery of the product and the loan contract must mention the object of the financing. Auto credit provided by a dealer, purchase credit granted by a store or even credit granted by a merchant site can be qualified as affected credit. The client must usually make a personal contribution and the creditor grants him the rest.
Sometimes the affected credit is free for the borrower. In this case, it is the seller who bears the interest and costs of the loan without the borrower losing the protection due to him when he pays the credit. The application fee for this loan can be up to 1% of the credit and the overall effective rate varies from 4.5 to 9% depending on the duration and the amount allocated.
The other feature of this loan is that you only borrow what you need for the purchase. But what he does to you for the purchase of a good or service is not necessarily what you can borrow. This is why it is necessary to carry out the simulation of the affected credit.
- Simulation of affected credit
To carry out the simulation of an affected credit, you must fill in an affected loan calculator online. You need the amount of the loan, its duration, the cumulative amount of your income as well as that of your expenses. In order to take any affected credit, it is important to know precisely your borrowing capacity and your level of debt. In addition to the cost of credit, this information is essential to the purchase decision.
- The personal loan
Unlike assigned credit, personal credit does not require any justification for the future use of the allocated resources. This funding corresponds to unforeseeable expenses such as repairing the broken down vehicle. It can be granted by a bank or a credit intermediary within 24, 48 hours or more depending on the nature of the loan, the creditor and the lender's file. Personal credit online gives the advantage of having a rate fixed from the start as well as the duration of the loan and the maturity of the monthly payments well defined in advance. Among the many types of personal loans are the consumer purchase credit, the personal work credit (the bathroom, etc.), the personal auto loan, the revolving credit that can accompany a loyalty card or a credit card and the personal credit consolidation. You can take out a personal loan up to $ 75,000. Knowing that a credit agreement is a commitment to repay it, remember to simulate your personal credit in order to know its impact on your budget.
- Simulation of a personal loan
The important simulators are that of the APR, the borrowing capacity and the debt rate. The simulation of this credit gives you the estimate of your monthly payment, but there are nuances in the information to be provided for the personal work credit. Instead of the duration of the credit, provide the total duration of the work. The simulator will give you the estimated amount of the monthly work payment to be reimbursed each month.
The mortgage is a loan to individuals dedicated to financing the purchase, construction or renovation of housing. You can lend at a fixed or variable base rate depending on a financial index (euribor 3.6 or 12 months). The monthly repayment payments to be paid must not exceed 30% of your income and death disability insurance unlike unemployment insurance is taxed. The best-known real estate loans are the zero-interest loan, the home equity loan, the civil servant mortgage, the home savings loan, the young household loan, the home construction loan and others. The sums involved are often very large, hence the interest of anticipating the effects of your credit project with the mortgage simulation.
- Real estate loan simulation
With the real estate credit simulation tools available online, we can simulate in addition to monthly payments, borrowing capacity and debt ratio, notary fees or even estimate the amortization table of the future loan. For this, you need to inform the mortgage calculators on the desired amount, the amount of the personal contribution, the desired duration of the credit as well as your resources and charges.
Taking out a loan can have a big impact on your budget. This is why credit simulation is essential for the subsequent success of your loan project.